5 Steps To Financing Your Kids Dreams
Parents want the best for their children, to make them independent and successful in their future. When it comes to education, parents have high expectations from their children and want to provide them with the best possible education. Gone are the days when the only career option was medicine or engineering. With the flickering mind of young adolescents, it’s difficult to tell what field or university they want to pursue, making it difficult to analyse the amount required to be invested.
The trend of studying abroad has grown over time. Premium colleges in India, such as IIM Indore, the fee is ₹11,00,000 (Source: IIM, 2023) for an integrated management programme. For international studies, the fee is even higher. The University of Warwick in the UK lists its 1-year MBA course at £49,950 (Rs 49,950,00) (Source: University of Warwick, 2023), and the University of California Berkeley in the US lists its 1-year MBA course at $116,178 (Rs 92,94,240) (Source: University of California Berkeley, 2023).
Assuming the education inflation rate to be 8%, 5 years down the line, these costs jump up to ₹16,16,260, ₹73,39,293 and ₹1,36,56,287, respectively. The future of kids can’t be predicted well enough in advance. These expenses are so high that some of the needs of parents have to be delayed to meet the cost of education if not planned in advance. In such a case, one can look up a SIP plan in mutual funds for child education well in advance to prepare a roadmap to fulfil their needs.
“The best way to predict the future is to invent it.” - Alan Kay
The initial step towards planning for a child’s education is to have an estimate of the overall cost and keep that as a ballpark figure to achieve with long-term investing. Estimating the amount required for investing can be done with the help of a SIP Calculator.
The following steps can be taken to ensure a secure future for your kids.
- Start early - At a tender age, parents start teaching their kids about good values and practices so that when they become adults, such habits act involuntarily. The same approach should be applied towards financial planning when a child is at a young age. Preparing for a college fund early is a wise decision that can help reduce financial stress and ensure that your child has access to quality education. The earlier you start the investment, the less you need to set aside. With disciplined investing practices, over time, the power of compounding would do its magic to build a huge corpus.
- Start a SIP - For years, parents have stuck to traditional investment tools such as fixed deposits, gold or silver to build a corpus for their children. However, such assets don’t have the ability to beat education inflation.
On the other hand, a systematic investment plan in mutual funds will inculcate financial discipline, compounding effect and rupee-cost averaging through which achieving the financial dream would be easier. For instance, if you start investing Rs 19,000 per month as soon as your child is born when he is 21, a huge corpus of Rs 2.5 crore is generated if investments grow at a rate of 15%.
University Fee Fee in INR Tenure Fund required SIP P.M. IIM INR 1100000 11,00,000 21 Rs 55 lakh Rs 5000 Warwick GBP 49950 49,95,000 21 Rs 2.51 crore Rs 24,000 UCB USD 116178 92,94,240 21 Rs 4.68 crore Rs 45,000 - Invest cash gifts - In India, it is a tradition to gift cash when certain milestones in life are achieved. If these cash gifts are invested in equity mutual funds, it adds to the college fund, making it easier to build the education fund on time. Instead of gifting your child with non-return-generating items, invest them in mutual funds instead, which will be rewarding in the long term.
- Keep the majority of investments liquid - When other investments are not in liquid form, and a sudden need arises for a huge expense, and other investments are in illiquid assets, parents might have to creep into the college fund to tend to these expenses. Investments in illiquid assets such as real estate take a long time to become liquid.
- Insure the college fund - Ensure that there is adequate life insurance for the bread-earner of the family so that even in his absence, the college fund is not compromised. This can be done by having insurance that comfortably covers the education corpus.
To conclude, it is very important to start early and build a roadmap to invest in your child’s education by starting a SIP in mutual funds to finance your child’s dreams, you can give them the invaluable gift of quality education. SIP's disciplined approach and regular contributions enable investors to save and invest consistently over a long period of time, which is critical for building an education fund. With the magic of compounding, you can witness a small SIP building a huge fund, and the benefit of rupee cost averaging will help lessen the impact of market swings on investments.
Investors can also seek guidance from a mutual fund distributor who can help analyse all the needs of the investors and help quantify them. Further, they can match these needs with the risk profile and the horizon to meet the needs in order to recommend the most suitable mutual funds. With the guidance of a mutual fund distributor, investors are one step closer to fulfilling their kids’ dreams.